In the last year, there have been several measures and decisions by the European Commission and Courts which may pose antitrust risks for Chinese companies doing business within the European Union.   

First, on 26 September 2013, in appeals relating to the chloroprene rubber cartel (Cases C-172/12P and 179/12P), the Court of Justice held that the parents of a joint venture, DuPont and Dow Chemical respectively, were jointly and severally liable for the cartel behavior of their JV, even though the parent companies did not themselves participate in the cartel.  Nor was it material whether the parents approved of the cartel or even knew about it.  The parents were held responsible solely because they jointly exercised a decisive influence over the conduct of the joint venture.   Decisive influence exists when one or more parents exercise the power to control strategic commercial decisions of the JV, such as selection of its upper management, business plan and major investments.  This decisive influence may be exercised affirmatively or solely by veto power.

In an extension of the above ruling, in its 2 April 2014 decision in the high voltage cable cartel,  the European Commission not only affirmed the joint and several liability of parent companies for the cartel conduct of their joint venture, but did so where one of the parents was Goldman Sachs.  Financial investors, such as banks and private equity firms, are therefore subject to such liability simply by virtue of the operational control that they exert over the joint venture. 

Still more recently, on 25 June 2014,  the European Commission issued a "staff working document" setting out its policy as regards to conduct considered anti-competitive "by object,"  meaning that the conduct is deemed, by its very nature, to be anti-competitive without proof of any anti-competitive effects.  This document should be seen as an affirmation and elaboration of the Expedia judgment of the Court of Justice of 12 December 2012 (Case C-226/11), which clarified that no effects need to be shown in "object" cases.   Not surprisingly, cartels fall within this categorization (including price-fixing, market sharing, output restrictions and bid rigging.  Also, vertical price-fixing and resale price maintenance are considered "object" restrictions, thus affirming that the EU is more severe than the US on RPM.

The above measures and decisions taken by the European Commission and Courts have potentially strong ramifications for Chinese companies.  Firstly, they demonstrate that while the Chinese company may not face much antitrust scrutiny at home (perhaps because it is owned and controlled by the State), they act at their peril by ignoring or discounting the risks of doing business in the EU.  Actually, all that they need is a rigorous antitrust compliance program so that employees are properly educated as to conduct that they should avoid. 

Also, given that joint ventures are a popular vehicle for many Chinese companies seeking EU market entry, the above case decisions imply that the Chinese investor must extend its due diligence to include the pre-existing antitrust risks lurking within the company that will be joint controlled (ie the joint venture)—even where the Chinese company is purely a financial investor.  For example, antitrust counsel should conduct a review of the joint venture's agreements, files and emails to determine whether any employees have reached anti-competitive understandings (or had unjustified contacts with) any competitors.    

These EU developments should not discourage Chinese companies from investing in the EU. They simply imply that the EU regulatory environment should be respected as a matter of good corporate governance. With proper measures, it is possible to greatly reduce or even eliminate the antitrust risk.

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